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Keystone pipeline, unfinished - shannonpatrick17 via Flickr

On the State Department's recommendation, President Obama rejected TransCanada’s plans to extend the Keystone XL pipeline on Wednesday. In a move that many have called controversial, the State Department said the company could apply again with a route that avoids the "sensitive terrain" around Sand Hills, Nebraska.

The extension of the Keystone pipeline would carry oil and natural gas from the oil-rich sands in Alberta, Canada, all the way to the Gulf Coast in Texas.

But the State Department suggested the project be scrapped. From the press release:

Today, the Department of State recommended to President Obama that the presidential permit for the proposed Keystone XL Pipeline be denied and, that at this time, the TransCanada Keystone XL Pipeline be determined not to serve the national interest. The President concurred with the Department’s recommendation, which was predicated on the fact that the Department does not have sufficient time to obtain the information necessary to assess whether the project, in its current state, is in the national interest.

The Obama Administration decided against allowing the pipeline to go forward given a short time-frame to determine whether the planned route fit its requirements, according to the release. Nebraska environmentalists have argued the pipeline could pollute aquifers in the area and render water undrinkable.

Crude oil prices inched up on the news, in what had been a see-sawing day. By4 PM in New York, front-month WTI was trading up 0.15% or 15 cents to $100.86.

According to TransCanada, the company planning to build the pipeline, Keystone XL would alleviate transportation bottlenecks and improve capacity in a market where oil imports total 10 to 11 million daily barrels. The company claims it would put 13,000 people to work building the pipeline and 118,000 spin-off jobs “through increased business for local goods and service providers.”

Building the Keystone extension would provide additional transportation capacity at the crucially important city of Cushing, Oklahoma. The pricing point for NYMEX spot and future WTI contracts, which determine the price of crude oil, Cushing has faced severe bottlenecks as its capacity to transport crude oil to the refinery-rich Gulf Coast has been limited.

Providing further capacity would help put WTI prices in closer balance with the global benchmark, Brent crude. WTI prices are thought to be artificially lower than they should given major companies like Exxon Mobil, BP, Valero, Conoco Philips, and Marathon Oil have refineries in the Gulf Coast that aren’t gaining access to much of the crude stuck at Cushing.

Enbridge, which recently bought Conoco Philips 50% interest in the Seaway Pipeline, is a big winner from the delay. Enbridge announced plans to reverse the Seaway Pipeline, which runs from Cushing to the Gulf, and should continue to derive demand for its services.

Shares in TransCanada dropped during the day, and were trading down 0.8% or 34 cents to $41.40.